FOR IMMEDIATE RELEASE 97-34A
Statement of Chairman Arthur Levitt and General Counsel Richard
Walker Regarding the Report to the President on the Impact of the
Private Securities Litigation Reform Act
Washington, DC, April 16, 1997 --The Securities and Exchange
Commission late yesterday afternoon delivered to the White House
a report on the initial impact of the Private Securities
Litigation Reform Act, which was enacted in December 1995. The
80-page report was prepared by the Commission's Office of the
General Counsel in response to a request made by the President to
Chairman Arthur Levitt. The President specifically asked for the
Commission's analysis and advice about the "impact of the act on
the effectiveness of the securities laws and on investor
protection, and on the extent and nature of any litigation under
the act."
Chairman Levitt said, "It may be that the most important
conclusion in the Report is that it is too early to reach any
definitive conclusions." The Chairman noted that securities
class action lawsuits are complex cases that often develop over
several years. "As the Report points out, the issues about which
we have the most information are those that typically arise at
the beginning of the litigation process. Further monitoring of
these cases is needed to determine how they are ultimately
resolved, and whether those resolutions are consistent with the
goals of the securities laws."
Richard H. Walker, the Commission's General Counsel, pledged
that his office will continue to carefully monitor the impact of
the act, and will report back to the Commission as needed. "As
more data becomes available, and the appellate courts have the
opportunity to address issues arising under the act for the first
time, trends should become more discernible."
A summary of the principal findings of the Report is
as follows:
* The number of companies sued in securities class actions in
federal court is down for the twelve months following
passage of the Reform Act. This may be a temporary
aberration, however, as the rate of case filings in the
first three months of the year following passage of the Act
was so low that it may not be representative, and may be
overstating the reduction for the year as a whole. In any
case, more time is necessary to determine whether the number
of cases has been permanently reduced by the Reform Act.
* The "race to the courthouse" by plaintiffs' lawyers has
slowed somewhat. Although a few cases were filed within
days of the release of negative news by the issuer, most
cases were filed after at least several weeks had passed.
* The discovery stay imposed by the Act while a court is
deciding a motion to dismiss, coupled with the more
demanding pleading standards, has made it more difficult for
plaintiffs to bring and prosecute securities class action
lawsuits. No cases to date have been dismissed without
leave to amend because of the new pleading standards.
Plaintiffs who are unable to uncover publicly available
evidence of wrongdoing sufficient to meet those new
standards prior to filing their complaints, however, may
find it difficult to amend their complaints without access
to discovery.
* Although the Reform Act sought to increase the participation
of institutional investors in securities class actions,
institutional investors have taken a leading role in only 8
of 105 cases. Securities class actions generally continue
to be controlled by plaintiffs' law firms.
* Secondary defendants, such as accountants and lawyers, are
being sued much less frequently in securities class actions.
This may, however, largely be the result of a 1994 Supreme
Court decision eliminating liability for aiding and abetting
in private securities fraud actions.
* The number of securities class actions filed in state court
has reportedly increased. Moreover, many of the state cases
are filed parallel to a federal court case in an apparent
attempt to avoid some of the procedures imposed by the
Reform Act, particularly the stay of discovery pending a
motion to dismiss.
* Finally, based on discussions with the issuer community and
review of filings with the Commission, the staff believes
that the quality and quantity of forward-looking disclosure
has not significantly improved following enactment of the
safe harbor for forward-looking statements. So far, it
appears that companies have been reluctant to provide
significantly more forward-looking disclosure than they
provided prior to enactment of the safe harbor.
The Report notes that there are still many uncertainties
about the effects of the Reform Act and that the staff expects to
continue carefully monitoring the cases. The staff states that
it is too soon to draw any firm conclusions about the effect of
the Reform Act on frivolous securities litigation, or, for that
matter, on meritorious litigation. Accordingly, the staff does
not recommend any legislative changes at this time.
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